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DigitalGlobe, GeoEye Discuss Merger

Walter Scott and Matt O'Connell Offer Context for a Combined Company

By Kristin Quinn

Following months of uncertainty over impending budget cuts to the National Geospatial-Intelligence Agency’s EnhancedView commercial imagery program, and unsuccessful bids by both companies to acquire one another, DigitalGlobe and GeoEye announced merger plans July 23.

“This brings together a number of pieces that were separate, where each of the two companies had chosen to make investments in a piece of the total puzzle as opposed to making investments across the board,” said Walter Scott, founder of DigitalGlobe and now the company's chief technology officer, who discussed the announcement with trajectory via phone.

The U.S. commercial imagery giants will combine to form what they are describing as a “global leader in earth imagery and geospatial analysis." The two companies will merge in a cash and stock transaction valued at around $900 million. The combined company will be called DigitalGlobe and be headquartered in Colorado.

Jeffrey Tarr, the current DigitalGlobe CEO and president, will maintain his position. Matt O'Connell, GeoEye CEO and president, is expected to assist the management of the combined company in an advisory capacity following the merger.

Scott heralded the complementary strengths of DigitalGlobe and GeoEye, and said the combined company will be able to manage its total satellite constellation more efficiently, as well as take advantage of the capabilities of each of the sensors. He anticipates the end result will mean a better ability to revisit locations, satisfy customer requests faster, and make the discovery of imagery easier through a common archive. This will also expand the range of customer problems that can be solved when coupled with the analytics and value-added production GeoEye has invested heavily in.

“When you put two pieces together, in some aspects 1+1 is more than 2,” Scott said.

O’Connell also spoke with trajectory via phone, and said the combined company will speed timelines, enhance persistence, and deliver higher value for the taxpayer.

“This is very good for the U.S. government,” O’Connell said. “It’s what they need when they need it.”

However, speculation about the acquisition or failure of one of the two major U.S. commercial imagery providers has prompted concern for the industrial base during the last year.

O’Connell said it’s important not to look at the market so narrowly, and to realize that the satellite imagery business extends far beyond the U.S., and also has to compete with other collection methods, such as aerial imagery collected from UAVs. Producing value-add by turning imagery into information services also brings the commercial imagery providers up against bigger contractors in the data market.

“When you put the whole spectrum of the earth imagery and geospatial analysis together, then it’s a very big and robust marketplace,” O’Connell said.

Scott emphasized that competition from overseas will also continue to drive innovation.

“Combining the complementary capabilities puts us in a better position as a company to compete against foreign government-subsidized systems like the French [Astrium], as well as the other numerous companies and government assets that collect earth imagery,” Scott said.

Scott said the merger will also provide better stability through the diversification of revenue. As stand-alone entities, each company relies upon the U.S. government for about 60 percent of its revenue. As one company, the percentage of non-U.S. government revenue will be closer to 50 percent, Scott projected. He added that this revenue diversification will generate more confidence, as well as a lower dependence on the U.S. government, and that getting back to scale will allow the companies to pursue opportunities in research and development beyond the scope of what they could accomplish singularly.

Until the merger is complete, DigitalGlobe and GeoEye will continue to operate as two separate companies and competitors, according to Scott. Both Scott and O’Connell expressed confidence in their advisers and that the transaction would take place in a timely manner, ideally becoming final in the late 2012-early 2013 timeframe.

“This establishes a strong global leader that can compete effectively internationally and support our government in a cost-effective way,” O’Connell said. “It’s great for the industry and great for America to have a clear leader.”